Tuesday, March 31, 2009

Today is the day when the most highly selective (i.e. lowest percentage of admits) colleges will inform students who they have decided to admit in their regular admissions cycle. (The Ivies are due to announce at 5PM Eastern time, Stanford and some others tomorrow...most less selective colleges and universities have already announced...).

The prospects for college admissions this year sound a little confusing, at least in the NY Times: I'll start with a longish quote that gives the gist of their analysis, and then follow with some comments of my own.

For Top Colleges, Economy Has Not Reduced Interest (or Made Getting in Easier)"Representatives of Harvard, Stanford, Dartmouth, Yale, and Brown, among other highly selective institutions, said in telephone and e-mail exchanges in recent days that applications for the Class of 2013 had jumped sharply when compared to the previous year’s class. As a result, the percentage of applicants who will receive good news from the eight colleges of the Ivy League (and a few other top schools that send out decision letters this week) is expected to hover at – or near – record lows."Bill Fitzsimmons, dean of admissions and financial aid at Harvard since 1986, said that the 29,112 applications Harvard received this year represented an all-time high, and a 6-percentage point increase from last year. He said the percentage of applicants admitted would be 7 percent, down from 8 percent a year ago. Dartmouth said that the 18,130 applications it received was the most in its history, too, and that the 12 percent admitted would be its lowest."Stanford said that the 30,350 applications it received represented a 20 percent increase, and that while it estimated a 7.5-percent admission rate, which would be its lowest, it declined to specify a final figure until later in the week."Yale, Brown, Columbia, Cornell and Princeton declined to release their final admission rates in advance of sending out most of their decision letters via e-mail at 5 p.m. eastern time on Tuesday. But Brown said it had received 21 percent more applications, overall, compared to a year ago; Yale was up 14 percent; Columbia was up 13 percent and Cornell was up 3 percent. Princeton said that, as of January, it had tallied a 2 percent increase in applications, but anticipated the pool had gotten even larger since then. At the University of Pennsylvania, the number of applications increased by 4 — to 22,939, from 22,935."However, applications to highly selective colleges were not up universally. Many of the best-known liberal arts colleges had fewer applications this year."

The reduced applications to liberal arts colleges are probably good news for the high school seniors who made those applications. But it is much less clear that the increased numbers of applications to selective universities will be such good news for those universities (or quite such bad news as the story anticipates for their applicants). In particular, while there may be record numbers of high school graduates this year, it seems likely that they are also applying to more universities than they have in the past.

This may be recession related, as people look for more competing financial aid offers. But it may also just be everyone's reaction to being told by their high school guidance counsellor that this year may be unusually competitive, so that no one can count on getting in at the schools they traditionally expected to go to. That is, if everyone else is applying to more universities, and if additionally, in reaction, universities are going to admit a smaller percentage of applicants, then a rational response is to apply to more schools yourself.

But if this is the case, and if universities' preferences are correlated (as they must be, since they all like high grades and exam scores), then many universities will be admitting the same applicants. Since applicants can accept only one offer of admission, this may mean that the percentage of admitted students who accept their offers ("yield") will be unusually low for many elite universities. (Maybe not for Harvard.)

If that is the case, there should be an unusual number of admits from wait lists this year. Universities have likely prepared for this by putting lots of students on their wait lists. But still, there should be some movement on those lists this year.

It contains a number of points, not least of which is that the new legislation will legalize Kidney Exchange in Singapore. (It's interesting to note that they are thinking of legislating simultaneous exchange.) More interestingly, the speech elaborates on the manner in which the legislation is meant to continue to prohibit "organ trading," while allowing the reimbursement of donor expenses by the recipients.

All of this will make it interesting to see how procedures in Singapore evolve. Will willing donors become abundant, and will they thrive in the long term? Will the availability of compensation crowd out the familial donors who drive kidney exchange? Will it be possible to restrict payments to expenses and lost wages? As Jeff Ely noted yesterday in his post Organs for Money, "Whether or not the new laws truly legitimize organ sales, markets have a way of organizing themselves around and in-between the cracks of legislation."

Some excerpts from the speech (emphasis added):

"(II) Allow Paired Matching4. All supported the proposal to allow paired matching. Dr Fatimah called for the establishment of a “systematic, proactive and well-organised living donor registry” to support paired matching. I agree. The National Organ Transplant Unit of the Ministry of Health will take charge of this.
5. The same unit will also take charge of setting up a Donor Care Register to monitor the health of the donors. Mdm Halimah and some other Members are curious about the long term health of the living donors. If the donors are well selected, there is good medical evidence overseas to suggest that there are few adverse medical impacts. But there is little local research on this. The proposed register will help us track long-term clinical outcomes and allow us to better understand the long-term impact of organ donation, if any.
6. Prof Thio asked how “pair matched” organ transplants will be regulated. She noted that in other jurisdictions, the transplant surgeries are carried out simultaneously to avoid situations where one of the donors decides to back out. Dr Lim Wee Kiak stressed the need to carry out such procedures simultaneously. Indeed, this will be the requirement for paired matching, that the surgeries will all have to be done simultaneously. Our Bill includes provisions for subsidiary legislation to be made to regulate organ transplant arrangements, including mandating that paired transplants be simultaneously performed, if this is necessary. We can achieve such an outcome administratively since the operations are carried out in our hospitals, but we will study if there is a need for an explicit regulation."
...

"(III) Allow Payment for Living Donors
7. Let me now address the more controversial issue of payment for living donors.
Safeguards against Organ Trading
8. While all Members supported the good intention to reduce the financial losses incurred by donors through reasonable payment, Members were concerned that it might lead to organ trading, and Singapore becoming a regional organ trading hub. For example, Miss Sylvia Lim was concerned that the reimbursement value could become a backdoor to organ trading. During the public consultation stage, the World Health Organization and many Singaporeans expressed a similar concern.
9.Let me reiterate that this Bill does not legalise organ trading. During the public consultation, decriminalising organ trading and the Iranian model were often cited. But this Bill is not to legalise organ trading. Hence, Mdm Halimah’s concern about the Bill affecting Singapore’s relationship with its ASEAN neighbours does not arise. Our Bill in fact contains an amendment to raise the penalty on syndicates involved in organ trading. The Bill is to catch up with what many OECD countries have already done for many years. In drafting our amendments, we took reference from similar legislations in several of these countries. We are correcting our current extreme position of criminalizing all kinds of payment to the donor. For example, currently donors are charged by the hospitals for all their transplant-related medical and surgical expenses. The recipients are prevented by HOTA from reimbursing the donors for these expenses. The proposed amendments will bring us in line with jurisdictions such as the US and UK to allow some payments to be made to the donor.
10. Let me also clarify that we are not making it compulsory to reimburse living donors. We are merely allowing organ recipients, if they wish, to make some payment to cover the financial losses incurred by their donors. In fact, I will not be surprised if many living donors continue the current practice of not requiring any reimbursements from the recipients. This would address the concern of some members that low income recipients may not be able to afford such payment. But in the event that some donors may need such reimbursements and the recipients agree to do so, the law should not prevent it from happening.
11. I must also explain that reimbursement only applies to living donors.It does not apply to cadaveric donation where allocation of organs will continue to be based on tissue matching, time on the waiting list and other clinical factors as objectively determined by an expert committee. Hence the concern of Mdm Halimah and Mr de Souza about rich patients jumping the queue for the cadaveric organs does not arise. Indeed, as carefully pointed out by Mr Sam Tan, the Bill does not discriminate against the poor. Among living donors today, there is a mix of high and low income donors.
12. But as Members put it, the real challenge in donor reimbursement lies in the practical difficulties of making a distinction between what is reasonable payment and what is inducement. I agree with Members that the key lies with putting in place appropriate safeguards. ..."
...

"21. Some of the Members asked who would pay the donors. The organ recipients would make the payment. Some Members suggested that a third party should administer the payment. Some payments will indeed be via a third party. For example, reimbursement for hospital expenses incurred by the donor can be done via the hospital. But there will also be payments which are made directly between the donors and the recipients, without going through a third party. Mdm Halimah suggested that part of the payment can be made via the donor’s Medisave Account. I think it is a good idea, provided the CPF rule allows such a voluntary contribution. Mr Ang Mong Seng suggested having a trust to hold half of the money received by the donor to ensure that it is not frittered away. But such arrangements are best left to the donor and recipient to decide."

High end prostitutes and others who do business as "escorts" are vulnerable to booking bad customers, who may be abusive, fail to pay, be undercover police officers, insist on unsafe sex, or simply fail to keep their appointments. Because the services prostitutes sell are largely illegal, and because their customers may be anonymous, the market design problem of establishing a recommender/reputation feedback system to identify problem customers is considerable.

But there are several efforts in this direction, including sites which attempt to be available to the profession only (e.g. ProviderBuzz and DangerZone411), and, more accessibly, the National Blacklist Deadbeats Registry (Serving the Escorts Community)"Our Vision: To see the day when female escorts (meaning; adult service providers, sex workers, call girls, courtesans, etc.) can work free from harm, and with peace of mind from pests, scammers, abusers, harassers, and stalkers."

The site (which requires a paid subscription to be able to search the reports) invites escorts to report and (try to) identify problem customers. The "incident report" form prompts the reporter for any available information identifying the customer (name, email address or phone number, "stated occupation," etc.), for a full physical description, and for a description of the incident, including an address (but with the warning "DO NOT put your address if the incident was at your incall location. You do not want to show YOUR address!")

Abbreviations for frequently reported categories are helpfully provided:"Legend For AbbreviationsBC Boundary Crosser or Rule BreakerBAYR Book At Your RiskBBBJ Bare Back Blow JobBBFS Bare Back Full ServiceBBG Bare Back Greek (Anal)DNS DO NOT SEE!!! "Bad Client Warning" (Various Reasons)FDFK Forced Deep French KissingILE Impersonating LELE Law EnforcementM Manipulative, or Threatens to "out you" or ruin your working reputationPST Phone or internet harasser/phone stalkerRAPE Rapist, any forced penetration without consentROB Refuse to pay or took back $ afterRCON Sneaks off condomSC Short ChangerST StalkerNS No Show (NSNC - No Show, No Call)STD Visible STDV ViolentVP Physically violent or rough, assault, batteryVA Verbally abusive, rude, threatening, demeaning"

Sunday, March 29, 2009

A new law was passed on March 24 in Singapore, allowing compensation for live organ donation. It's not yet clear what this will mean in practice: I excerpt below from a number of stories.

Singapore allows payment for living organ donors"After a heated two-day debate, in which some legislators raised concerns that the new law might lead to open organ trading, four of the 84 members of parliament abstained the final vote and one voted against, the Straits Times newspaper reported...."Not all legislators were convinced, although Health Minister Khaw Boon Wan had assured parliament that the new law "is not to legalise organ trading.""We are correcting our current extreme position of criminalising all kinds of payment to the donor," Khaw said.Singapore already had a legal system to prevent organ trading, he said. "And we will be strengthening it," Khaw added.The new law, which also contained some other changes, allows living organ donors to be reimbursed the costs for items like travel, accommodation, costs of domestic care and child care, loss of income and long-term medical care..."Another dissenter, Halimah Yacob, said that many foreign workers in Singapore, who are hit hard by the recession, could become "a ready and vulnerable pool of organ donors to be exploited and abused.""To a desperate foreign worker, even a reimbursement of S$10,000 would be attractive compared to going home empty-handed with a huge debt waiting for him," the report quoted her as saying.The Singapore government proposed to change the law after ailing retail magnate Tang Wee Sung was jailed for a day and fined S$17,000 in June last year for trying to buy a kidney from an Indonesian donor.Tang finally received a kidney from former organised crime boss Tan Chor Jin, who was hanged in a Singapore prison in December for the killing of a nightclub owner."

A tough moral choice : Slew of safeguards promised as MPs approve recompense for organ donors, though five remain unconvinced."IT WAS a moral dilemma Health Minister Khaw Boon Wan apologised for imposing on Members of Parliament, after two days of intense debate.Their tough choice: Should they correct the unfairness against: altruistic organ donors by allowing them reimbursement for their financial losses, but at the risk of opening a backdoor for abuse? "

Singapore allows financial payment to organ donors"Previously, it was illegal for a living donor to be financially compensated but the issue came to a head last year when a local tycoon was jailed for one day for attempting to pay off a prospective Indonesian kidney donor."This is a bill about fairness, being fair to donors who do suffer financial consequences as a result of their act of donation," Health Minister Khaw Boon Wan told parliament Tuesday during the final debate on the issue."I know the controversial nature of paying donors," Khaw said. "But we also realise that it is unfair to allow genuine donors to bear all the financial consequences of their altruistic acts."Khaw said he disagreed with the suggestion made by some lawmakers that foreign donors be barred from accepting financial compensation to prevent exploitation of nationals from poor countries."How can we discriminate against the foreign donors in this fashion?" Khaw said."Once we decide that some payments can be ethically made, our law cannot unfairly discriminate against organ donors based on their nationalities," he said."

Singapore's Human Organ Transplant Act dates from 1986, when it instituted an opt-out system for all of the country's non-Muslim citizens. Under the law, citizens could opt out of becoming organ donors, but all those who did not would be considered as organ donors upon their death, and would in turn receive priority (over those who opted out) for receiving deceased organs. Unusually among countries with opt out policies, organ donation has been enforced even over the objections of next of kin.As amended in January 2008, the Human Organ Transplant Act (HOTA) now includes Muslim citizens of Singapore.

How to give money to a friend anonymously (and be sure that it is received)? Try Giving Anonymously, established "to facilitate giving in such a way that "money" does not hinder friendship." They will send along your gift via their own check, and send you a copy of the cancelled check.

Anonymity when giving charity has a long history. It plays a big role in Jewish thought, for example, as codified by the 12th century scholar Rabbi Moshe ben Maimon (aka Maimonides, or the Rambam).

When looking at repugnant transactions, often the addition of money is what arouses repugnance (e.g. kidney donations don't arouse the repugnance of kidney sales). Something like that seems to be at work here; you might like to give someone a gift, they might need and want one, but the complications of giving and receiving money from a friend might prevent an otherwise mutually desired transaction from going through.

What is the price of anonymity? Doing it through this particular anonymizing service costs $2.50 + 2.5% of your gift.

Update (and sign of the hard times): Today's Boston Globe has a story on a related theme: Colleagues pitch in to ease the pain."As the economic downturn persists, specialists who follow workplace trends say more employees are trying to save colleagues' jobs through voluntary pay cuts or freezes, furloughs, and donations. "

Saturday, March 28, 2009

Among the oldest repugnant transactions are those that involve dealing with the dead. In the early 1800's, British medical schools illegally purchased cadavers for anatomy classes from grave robbers called "resurrection men," because the only cadavers legally available for dissection were the bodies of executed murderers. (The Harvard Medical School is in Boston rather than Cambridge, I understand, because of an arrangement offered by the city of Boston to supply unclaimed cadavers.) But those constraints have been relaxed over time, and in my 2007 paper Repugnance as a Constraint on Markets, I used as an example the "Bodyworlds" museum shows that tour the world, allowing museum goers to see cadavers (posed as if engaged in lifetime activities) in detail previously available only to medical students (and here is an essay on the value of that experience to medical students: Dead Body of Knowledge).

(Meanwhile, elsewhere in the Middle East, the tensions between secular and religious, ancient and modern, is of a very different sort:Hardline Saudi Clerics Urge TV Ban on Women, Music." ''No Saudi women should appear on TV, no matter what the reason,'' the statement said. ''No images of women should appear in Saudi newspapers and magazines.'' ")

Thursday, March 26, 2009

It is part of a post titled AGT and practice, which is worth reading along with the paper. In the paper, Nisan and his coauthors first describe the Google system and some of its requirements, then outline a (too) simple model (an ascending auction of the Demange, Gale, Sotomayor line), and then discuss ways in which the model is too simple.

All of this made me think of writing a post sometime called "Practice and Theory." I don't know that I have enough to say on that right now, but the main idea would be to reflect on some of the ways that market design, and the theoretical work that supports it, differ from traditional (theoretical) game theory.

In a traditional theory paper, a problem is presented, along with a model of that problem, and an exact solution. Producing such a paper is a bit like finding a fixed point: in the course of proving the theorem, it may be necessary to adjust the model, and the statement of the theorem, and perhaps the definition of the problem, in order that the parts all fit together properly.

In a market design paper, in contrast, the problem and to a large extent the model may be fixed in advance, and so what has to be adjusted is the solution. Sometimes an exact solution can't be found (perhaps an impossibility theorem shows that there is no exact solution), and instead some sort of approximate solution is found. Traditional theorists sometimes look at the results and say that they don't look like a good theory paper, which should find an exact solution. Part of our job as market designers, and theorists who do market design, is to help explain this difference.

"...the Cubs won a big lawsuit in 2003 after they set up a wholly separate firm “Premium Ticket Services” and transferred GREAT seats to them before opening tickets to the general public. They made some tremendous markups (reported to be 30 times face) on these seats.Attached is the law review paper about this case.Jasmin Yang, A Whole Different Ballgame: Ticket Scalping Legislation and Behavioral Economics?, 7 VAND. J. ENT. L. & PRAC. 111, 111 (2004)."

I can't resist adding that, long, long before Larry became Dean of the College of Business at the University of Illinois in Urbana Champaign (so long ago that it was still called the College of Commerce, and the Rand Journal was still the Bell Journal), he coauthored what I always hoped would become the definitive paper on strikes in major league baseball.

"Even the behavior of clicking Yes or No is elegant. Amazon tracks who rates each review as helpful, allowing each person to only vote once. This prevents "gaming the system" by voting for a friend's (or your own) review multiple times. Clicking either Yes or No pops up a quick message, saying the vote will take effect within 24 hours. (This delay also reduces gaming.)Amazon quietly bumps the three most helpful reviews to the top. It tries to balance positive and negative reviews, so shoppers get a balanced perspective. An interesting side effect is how these selected reviews get more votes. If they are controversial (in that not everyone agrees they were helpful), their ratio goes down, allowing the most helpful reviews to bubble up past them."

Wednesday, March 25, 2009

For economists who may not yet know, Nisan is one of the pioneers on the interface of computer science, game theory, and economics. He's also one of the editors of the book Algorithmic Game Theory, and the advisor of a host of students and postdocs whose work we are going to need to be familiar with as the connections between CS and Econ grow closer.

"Three European Union nations -- France, Spain and Portugal -- do not prosecute consenting adults for incest, and Romania is considering following suit.
...
"Incest is defined as sexual intercourse between people too closely related to marry legally. In the United States, all 50 states and the District of Columbia prohibit even consensual incest, although a few states impose no criminal penalties for it..."

Incest is surely one of the prototypical repugnant transactions, namely one that people don't like to have others engage in. Such repugnance is often reflected in law, but by no means always. (E.g. there is no law against going to the front of a long line at the supermarket checkout counter and asking a person near the front to sell you their spot, i.e. to move to the back of the line and let you into their place in return for a cash payment. But here's a story of an economist , Oz Brownlee, who, after trying to do that, decided that the best course of action was to leave the store without buying anything.)

A famous article by Jonathan Haidt (Haidt, J. (2001). The emotional dog and its rational tail: A social intuitionist approach to moral judgment. Psychological Review. 108, 814-834 ) begins with an example of consensual incest.
"Julie and Mark are brother and sister. They are traveling together in France on summer vacation from college. One night they are staying alone in a cabin near the beach. They decide that it would be interesting and fun if they tried making love. At very least it would be a new experience for each of them. Julie was already taking birth control pills, but Mark uses a condom too, just to be safe. They both enjoy making love, but they decide not to do it again. They keep that night as a special secret, which makesthem feel even closer to each other. What do you think about that, was it OK for them to make love?

"Most people who hear the above story immediately say that it was wrong for the siblings to make love, and they then set about searching for reasons (Haidt, Bjorklund, & Murphy, 2000). They point out the dangers of inbreeding, only to remember that Julie and Mark used two forms of birth control. They argue that Julie and Mark will be hurt, perhaps emotionally, even though the story makes it clear that no harm befell them. Eventually,
many people say something like “I don’t know, I can’t explain it, I just know it’s wrong.” But what model of moral judgment allows a person to know that something was wrong, without knowing why?"

Haidt (and colleagues, particularly Paul Rozin) have studied the emotion of disgust, and think that a lot of moral judgements may be mediated by the disgust reaction (whose initial evolutionary significance is presumably to prevent us from eating spoiled food, etc.). This makes a lot of sense for incest (because evolution should help us avoid inbreeding, with the excessive concentration of recessive genes in offspring).

I suspect that many of the more clearly economic transactions that are or have been regarded as repugnant are less closely tied to hard-wired disgust. That is not to say that, as people who are culturally acclimated to find some kind of transaction repugnant (e.g. charging interest on loans was repugnant for centuries in Europe), we may not be able to recruit our disgust reaction to make sense of things we disapprove of. Just as not every repugnant transaction is against the law, they may not all originate with (or even activate in a secondary manner) feelings of disgust. (See my other posts on repugnant transactions for a variety of examples...)

Estelle's conference has had some effect. She writes "The parliament of the French-speaking Community will adopt tomorrow a new school enrollment decree. The article says that it will be centralized (coordination among networks), that parents will be asked for their preferences, ... The details will be worked out after the elections in June. " Inscriptions: un nouveau décret, trois mesures

Sunday, March 22, 2009

To candidates on the economics job market (and to graduate placement directors): the scramble opens for registration tomorrow (March 24), and is open one week only (registration closes on March 30). There's no special benefit to registering on the very first day, but if you haven't registered by the last day you can't participate, so, if you're planning to register, don't wait til the last day (behavioral economist's advice).

The back story on this is that new Ph.D.s in economics have been busy since the first days of the year interviewing for jobs. The first stage of the interviewing process was at the annual professional meetings in early January. For jobs at universities, the latter stage of the interviewing process involves "flyouts," campus visits at which the candidate meets the faculty, and gives a research seminar or teaching demonstration, or sometimes both. While many jobs have been filled by now, there are both candidates and jobs still available. Many of the still unmatched candidates and still unfilled jobs are already engaged with each other in the courtship process, and are slowly working towards offers and acceptances. However there are also people and jobs still available who failed to connect with each other in the earlier parts of the market.

To make it easier for people and jobs to connect at this late stage of the market, the American Economic Association's Ad Hoc Committee on the Job Market* started a simple "scramble" in the 2005-06 academic year. It is a pair of web pages on which candidates and jobs can list their continued availability. See the Scramble Guide for details. This year's scramble opens tomorrow, March 24, and stays open for registration for a week. After that it becomes visible to registered participants on both sides of the market.

It doesn't attempt to do any more than make the two sides of the market more visible to each other, and after two weeks it closes. Once registration closes on March 30, the site is passive, it isn't updated. It is up to candidates and jobs to contact each other.

There is one new feature this year, which I'm slightly ambivalent about. Some departments that entered the scramble last year complained that they were overwhelmed by the large number of new applications they received. Faced with the threat of employers declining to participate in the scramble, the Committee decided to allow employers to register but withhold their information from job candidates. So this year there will be some "invisible" employers registered for the scramble, who will be able to see the candidates and contact those they wish, but whose own contact information will not be available.

So far, the scramble hasn't been a giant part of the market; most jobs have (fortunately) been arranged earlier, through the regular process. Last year, in the 2008 scramble (following the 2007-08 job market) 100 employers and 361 applicants registered. We conducted a followup survey of employers and received 30 replies. Of those employers who responded, 22 contacted people in the scramble, 19 interviewed someone from the scramble, and 10 hired someone from the scramble (one hired two people from the scramble) . 17 of the 22 respondents who contacted applicants in the scramble were academic economics departments, as were 8 of the 10 respondents who reported hiring through the scramble.

Every economist is important. Good luck to those still on the job market.

I was struck by this line in a story in the NY Times:"The auction itself began at 10:15 a.m. when Rob Nord, a professor of bid calling at the Missouri Auction School (“The Harvard of Auctioneering”), started with Lot 1: four diamonds varying in weight from 1.1 to 1.4 carats."

Here is the story: Selling the Diamonds the Government Doesn’t Need , which is about how the US government sells off items seized in the course of federal crimes, and, lately, acquired by the government in other ways."Mr. Levin, who, on average, takes a 10 percent cut from his auctions, has been very busy of late. In the last few years alone, he has sold for the government smuggled horses in Arizona, stolen cab medallions in Boston, 54,000 pounds of smoked Chinese scallops, a shipping container of blue jeans, illegally marketed Freon and a million packs of untaxed cigarettes."Tapping what could be a growing market, Mr. Levin recently secured a contract with the Federal Deposit Insurance Corporation to auction furniture, fixtures and equipment seized from failed banks around the country."

And here is the website of the Missouri Auction School, which does indeed mention that it is called the "Harvard of Auctioneering." Here are some sentences from the description of their course (I have always thought that the different chants used by auctioneers of different products in different places would be worth study):"The classroom portion includes small group sessions learning the auction chant from leading auctioneers from around the country. It also includes those top auctioneers sharing business insights and secrets with the entire class."

Saturday, March 21, 2009

Bestsellers in any category are what make publishing profitable. But childrens' books must be very special, because a bestseller can have high sales for a long time, as new generations of the target audience are born. I've always thought that this must be especially true for those books made of thick cardboard, suitable for chewing on as well as reading, since each new reader needs a new copy (chewing cuts down on the used book/hand me down market). But I hadn't guessed just how big the revenue stream is.

" 'The Very Hungry Caterpillar,' who eats his way through the book, leaving a trail of holes behind, has sold 29 million copies and has licensing deals, Newsweek reports, of $50 million annually. With the money, Carle established the Eric Carle Museum of Picture Book Art in Amherst, Mass.; its exhibits have celebrated works by Dorothy Kunhardt ("Pat the Bunny"), Arnold Lobel ("Frog and Toad") and Maurice Sendak ("Where the Wild Things Are"). "

"Less than a minute after tickets for last August's Neil Diamond concerts at New York's Madison Square Garden went on sale, more than 100 seats were available for hundreds of dollars more than their normal face value on premium-ticket site TicketExchange.com. The seller? Neil Diamond."

..."Secondary ticket sales are viewed by Ticketmaster, concert promoters and artists as one of the biggest -- yet thorniest -- sources for revenue gains. In 2006, Ticketmaster launched TicketExchange in response to pressure put on its profit margins by secondary-ticket sellers such as StubHub. But in doing so, it opened the company to criticism by ticket brokers, fans and politicians, who accuse the ticketing giant of profiteering and obfuscation.Ticketmaster is moving to distance itself from some parts of the secondary ticketing market. It is in the process of hiring an investment bank to try to sell another resale service, TicketsNow, according to people familiar with the matter.Virtually every major concert tour today involves some official tickets that are priced and sold as if they were offered for resale by fans or brokers, but that are set aside by the artists and promoters, according to a number of people involved in the sales."

One of the interesting things about this story is how Ticketmaster and the artists seek to put some distance between themselves and the secondary market. Luke Coffman (who you can try to hire next year), has a paper that seeks to understand this: Intermediation Reduces Punishment .

As part of his investigation into how people view economic transactions, he runs experiments that show that charging a high price through an intermediary may be seen as less blameworthy than charging a high price directly, even if going through an intermediary means that the ultimate price charged is higher than it would have been with a direct sale. And, he finds, this doesn't seem to result from confusion; apparently putting some distance between yourself and an act that may be regarded as blameworthy dilutes the blame, even in the eyes of observers who understand that you are doing it for that reason.

Thursday, March 19, 2009

Today is the third Thursday in March, Match Day for young doctors seeking their first job through the National Resident Matching Program (NRMP).

Here is the NRMP press release. Almost 30,000 applicants (11,000 from foreign medical schools) sought the 22,427 first year positions available in this year's match. About 95% of the available positions were filled through the match, the rest are filled in a post-match "scramble." (The organization of the scramble is under discussion, and here's the WSJ's account of it.)

The NY Times covers match day with a story and a picture: A Medical Student’s Rite of Passage . As in many discussions of labor markets, the author finds that many medical students wish they had more control over where they are going. Some of them attribute this loss of control to the match process, while others know something about how the medical market worked before the match. (Among the online comments on the story is this one:
"I wish they did something like this for law students. The job experiences and training available to new lawyers are extremely uneven. Plus it is on the law student to secure that first job on the open market, with no real guarantees of getting hired."

788 couples went through the match this year as couples (some others may go through without identifying themselves that way, and the NY Times story remarks that some were disappointed not to have gotten jobs together). For the technically inclined, here's an account of how the new couples algorithm works to allow couples to express their preferences over pairs of jobs (and of the design process that led to the new match algorithm that's been in use since 1998):
Roth, A. E. and Elliott Peranson, "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," American Economic Review, 89, 4, September, 1999, 748-780.

Among other things, I defended the point that the performance of a potentially regulated legal market can’t be well predicted from the performance of unregulated, illegal markets. Frank largely disagrees with that, and expects that any regulation short of attempting to ban organ markets outright will inevitably deteriorate into the kinds of illegal markets we see in some parts of the developing world.

Regardless, it's good to pay attention to the black and grey markets around the world. Here's an account of such a market in the Phillipines: No Turning Back. Some aspects of this market are quite black (the subject of the story is threatened with retribution if he changes his mind once medical tests have been paid for), and some are grey (quite a few medical tests are done, although perhaps not to the standard we would like), and some are not even so grey (the subject of the story is paid, and gets a motor vehicle and a house out of it, and would do it again).

"Lito, 23, a resident of Gumaca, Quezon, who sold one of his kidneys, knew the stakes just got higher when he was told before the transplant procedure that he could not back out anymore. A friend of his decided to pull-out. “They are hunting him down. They want to have him killed."..."On February 14, 2007, the friend accompanied Lito to a house in Barangay Tikalan, a village in San Juan, Batangas where a man named “Junior” who was referred to by his men as the “manager,” housed other would-be donors.“Junior” is also an organ donor. The following day, Lito and nine others were brought to a private hospital laboratory in front of the National Kidney and Transplant Institute (NKTI) where many people were having their blood samples taken. They also underwent a number of tests. X-rays were also taken. Junior paid for the procedures. "..."For over a month after the first tests, Lito shuttled back and forth from Batangas to Metro Manila in order to undergo various tests in different hospitals. In each of the trips, he was accompanied by either “Junior” or one of his men. The purpose, he was told, was to look for a match...."Back home in Gumaca, Lito found that money has a way of slipping easily between one’s fingers. In his case, it lasted only for six months. Almost half of the amount he got from selling his kidney—about P40,000—went to the payment of debts. With the rest of the money he was able to buy a tricycle and a small dwelling. Months later, however, he had to pawn the tricycle to pay for his daughter’s hospitalization. Lito does not regret going through the operation. “I was in dire straits,” he explained. If he did not go through it, he said, he would not have been able to pay his debts. Besides, he said, he did it for his family’s sake. “I am ready to give up my life, for the sake of my family.” "

Wednesday, March 18, 2009

Mostly we think it is good for information to be freely available, but one place where we often do not is in the adversarial system of trial by jury. The rules of evidence permit judges to decide what evidence is admissable, and what is not. I have served on juries in which we were instructed not to read news accounts of the trial we were part of. Sometimes juries are sequestered, so that they cannot have much contact with the outside world. That has all gotten a little harder to enforce, now that everyone has Google in their pocket: Mistrial by iPhone: Juries’ Web Research Upends Trials .

"Last week, a juror in a big federal drug trial in Florida admitted to the judge that he had been doing research on the case on the Internet, directly violating the judge’s instructions and centuries of legal rules. But when the judge questioned the rest of the jury, he got an even bigger shock.Eight other jurors had been doing the same thing. The federal judge, William J. Zloch, had no choice but to declare a mistrial, wasting eight weeks of work by federal prosecutors and defense lawyers."

While a lot of market design work is prompted by very specific markets, this paper deals with a more abstract question: could a market system without patents do as well as a patent system in encouraging innovation, if innovators could use their private information to make investments that would have unusually high returns?

Here is the abstract:"Because they provide exclusive property rights, patents are generally considered to be an effective way to promote intellectual discovery. Here, we propose a different compensation scheme, in which everyone holds shares in the components of potential discoveries and can trade thoseshares in an anonymous market. In it, incentives to invent are indirect, through changes in share prices. In a series of experiments, we used the knapsack problem (in which participants have to determine the most valuable subset of objects that can fit in a knapsack of fixed volume) as atypical representation of intellectual discovery problems. We found that our “markets system” performed better than the patent system."

The key experimental treatment is described thus:"In the markets system, participants were given an equal number of shares in each of the items of the particular KP, as well as cash. They could trade these shares in an anonymous, electronic exchange platform during a preset amount of time (840 s). The allowed time was double that of the prize system to compensate for the fact that subjects needed to perform two tasks: to solve the KP and to trade (to exploit the knowledge they gained from solving the KP). The platform was organized as a continuous double-sided open book (Fig. 1B), like most purely electronic stock markets in the world. The accumulation of orders generated the first transactions after about 100 s. Thereafter, trading remained brisk in virtually all markets (Fig. 1C). After markets closed, each share in an item that was in the optimal solution paid a liquidating dividend of $1; shares corresponding to items not in the optimal solution expired worthless."

The main results:"The correct solution was found under the markets system whenever this was the case under the prize system. Therefore, if the concern is to design a system that produces the optimal solution, the markets and prize systems are equivalent. In one important respect, however, the markets system outperformed: Significantly more participants reported the correct solution than under the prize system (Fig. 2A). For both systems, the fraction of participants who reported the correct solution declined with problem difficulty (Fig. 2B). The fraction may seem to decline faster for the markets treatment, but the difference in slopes was not significant. An outlier influenced the fits: Nobody ever solved the most difficult problem (difficulty = 6). It was solved in follow-up experiments [ran to check for robustness (11)], but only with the markets system, further corroborating its superiority."In the prize system, only the first to find the optimal solution is compensated, which may discourage many from spending effort. In the markets system, everyone could be compensated in principle, which may be sufficient to explain why more participants find the optimal solution. Alternatively, prices may convey information that facilitates problem solving for participants who would never find the optimal knapsack on their own. Figure 3A shows that prices indeed do provide a potential channel of communication: Prices of shares of items that were part of the optimal knapsack (“in” items) tended to be higher than shares of items that were not part of it (“out” items); the mean transaction price of in items was significantly higher than that of out items (P < 0.01)."

Monday, March 16, 2009

Journals are the clearinghouses of academic economics, providing the proximate demand for the articles that economists supply. In my previous post (Science journals and science journalism) I discussed the fact that economics journals have a much longer delay between submission and publication than journals in science and medicine. Some of this has to do with the reviewing process.

Preston McAfee, a veteran editor, has written a wise and not so funny* article about the editing process, based on his long experience at the AER and, more recently, Economic Inquiry (where he initiated a policy of allowing authors to opt for an accept or reject decision without revision).

I recommend the article, even though it is difficult to summarize. It is not an apologia; he says:"The way economists operate journals is perhaps the most inefficient operation I encounter on a regular basis."

*He also says "There is a lot of heartbreak in journal editing since most of the job is rejecting papers. If you are looking for amusing anecdotes, subscribe to Readers’ Digest."

Sunday, March 15, 2009

After my recent post The production of news: The NEJM news cycle about the effects of the New England Journal of Medicine's news embargo policy on the production of news stories, I corresponded with two of the young leaders in the new economics of media, Matt Gentzkow and Jesse Shapiro. They pointed out that, aside from increasing the number of stories, an embargo might increase their quality, by preventing a "race to the bottom" in which the shortest, least well reported stories can come out before more carefully researched stories. With an embargo, reporters don't have an incentive to rush to publish, they know they can work on their story up until the embargo expires.

A separate issue was raised in an article Matt pointed me to, one that I had already noticed sharply distinguishes scientific journals like the NEJM and Science, which publish short articles weekly, from journals like the ones economists normally publish in, which publish longer articles, much less frequently, and with much longer delay. In Ingelfinger, Embargoes, and Other Controls on the Dissemination of Science News, Vincent Kiernan explores not only the effect of embargos, but also of the "Ingelfinger rule" (named after a former NEJM editor), which is that NEJM, Science, etc. won't publish an article that has in any substantial way been made available before publication. So, in particular, papers appearing in those journals can't first be posted on the web as working papers.

This is in stark contrast to the way economists work; the usual practice these days for an economist who finishes a paper is to put it up on the web even before it has been submitted for publication. Economics journals function as the archival sources of papers, not as the place they are first distributed. And this predates the internet; economists have communicated via pre-publication working papers at least since I entered the business, after the invention of the printing press, but before the word processor.

Partly this difference has to do with the speed of publication. A paper accepted by Science or the NEJM will likely appear not too many months after it has been submitted, while the process at most economics journals takes well over a year (and two is not so unusual). As a result, the weekly science journals seek to be a combination of science journals and science news sources, in a way that economics journals do not.

The difference between the two was first brought home to me in 1990, when I received a call from the then editor of Science, which turned into a proposal that I write an article for them summarizing work I had done studying various labor markets for new doctors. I had circulated a working paper on that subject in 1989, and at the time of the phone call from Science it was forthcoming in the American Economic Review, in 1991. I told the editor of Science that I would have to check with the AER, but that if I wrote the article, it would state clearly that it was a summary of the longer AER article. He replied that he would like to have the article, provided the short summary in Science came out before the original article in the AER.

I called Orley Ashenfelter, who was then the editor of the AER, and he said something very close to "go ahead and give Science the summary, a five page paper can't scoop a twenty five page paper." His feeling was that as long as the AER had the definitive version, there was no problem. And that is how I came to have two papers on that subject, published out of order, in

Saturday, March 14, 2009

As the world wide web is increasingly accessed by mobile devices (equipped with GPS, and used largely by a single individual) the ability to narrowly target advertisements is increasing: Advertisers Get a Trove of Clues in Smartphones ."Advertisers will pay high rates for the ability to show, for example, ads for a nearby restaurant to someone leaving a Broadway show, especially when coupled with information about the gender, age, finances and interests of the consumer. "

"Applications that use GPS can offer even more specificity, including Loopt, Yelp, Urbanspoon, Where and almost any iPhone application that shows the pop-up box saying it “would like to use your current location.” Several firms are experimenting with a program called AisleCaster that can offer specials based on a person’s exact location in a supermarket aisle or mall.Advertising systems can track not only the location of the phone, but also that person’s travel pattern: uptown New York to Nob Hill in San Francisco, for instance."

"For now, there are not enough people using smartphones to make it worthwhile for advertisers to use highly specific criteria. But as more people switch to smartphones, that will happen more frequently."

The article also discusses the privacy issue, and whether customers will be "creeped out" by ads that reveal how specifically they have been targeted. (I wonder if people will find it equally creepy to be targeted by a computer from a big database that no human looks at as by a human being at a dinner time call center...)

"Amid the clamor to find the next basketball wunderkind, the evaluation of sixth graders remains an uncertain pursuit. Francis, who runs the Hoop Scoop recruiting service, said the process involved much guesswork.The players can stop improving, stop caring or stop growing." (emphasis added: the source of uncertainty is different in different markets:)

"In January, the N.C.A.A.lowered the school year a basketball player was considered a prospect from ninth grade to seventh grade.Though the change seemed curious, it closed a loophole that had allowed college coaches to gain a recruiting edge by inviting middle school players to private camps. Those middle school prospects are now protected by the N.C.A.A. the same way as high school recruits.For now, elementary school students are not included in this new rule. An associate commissioner of the Big East, Joseph D’Antonio, the chairman of the N.C.A.A.’s legislative council, hopes there is no need to change that.“I think the seventh- and eighth-grade endpoint is a place to begin, because that’s where the problem has been identified,” D’Antonio said. “Whether or not we see bylaws in the future that lower the age even further is going to be driven by what the coaching involvement is.”"

Thursday, March 12, 2009

My previous post was about the recent kidney exchange innovation by the Alliance for Paired Donation, just reported in today's issue of the New England Journal of Medicine. That NEJM immediately attracted some press, and in this post I consider the role that the NEJM's press embargo policy might play in generating news stories about some of the articles they publish.

The press policy of the NEJM is communicated to authors as follows (emphasis added):"Your Brief Report will appear in the March 12, 2009 issue of the New England Journal of Medicine (NEJM). This information is confidential. There is a press embargo on the contents of the issue until 5:00 PM ET on Wednesday March 11, 2009. On Friday, March 6, 2009 the content of the March 12, 2009 issue will made available to reporters who have agreed to respect our embargo. "

That is, a week before publication, the NEJM makes the forthcoming issue available to reporters who have agreed not to write about it until a specified time the next week.

To better understand how this kind of policy plays out, I asked a public relations person about the NEJM and their policy, and got the following reply:"...they have a reputation of being one of the best PR machines there is. Their embargo is one of the toughest on the planet as well; reporters and any others who violate it are dead for the rest of their lives in getting information on future NEJM articles. Anyone in the medical writing community knows and fears this."

At 9 pm on March 11, four hours after the embargo ended, here's what a Google news search for "kidney exchange" looked like (note the link to "all 217" news articles):

The first of these articles, in the Globe, was written by a reporter who talked to several of the participants, concentrating on those in Boston (which is where the economists on the team all reside, and also where another kidney exchange program, the New England Program for Kidney Exchange was started). The second (in Science Daily) is a press release issued by Boston College (where my economist colleagues Tayfun Sonmez and Utku Unver both teach). Some of the remaining stories have original content, but many are largely if not completely taken from some of the original reporting and press material. (I like the story that ran in the Washington Post, because it has a slideshow that shows off Mike Rees, the innovative--and apparently good looking--surgeon who is the lead author of the NEJM article, and a figure of emerging importance in the national discussion of kidney exchange).

So...I've written a lot of articles that attract little or no press, and certainly not a flood in a few hours. While kidney exchange is undoubtedly a subject with wider popular appeal than, say, the lattice structure of fixed points, I'm guessing that the NEJM's embargo policy plays at least some role (recall the comment that they are one of the best PR machines...). Here are three hypotheses--one psychological and two economic--about why the embargo might matter.

Hypothesis 1 (behavioral/psychological): telling reporters they can't publish before 5PM Wednesday makes them want to write about the story more...

Hypothesis 2. (coordination equilibrium): telling reporters that no one can publish before 5PM Wednesday reassures them that the time they put into the story won't be wasted, they won't be scooped by someone else who finishes their story earlier.

Hypothesis 3. (common value/winner's curse): in the absence of an embargo, a reporter tempted to try to write the first story might be worried that the absence of previous stories means that the subject isn't as interesting as it looks, won't be picked by editors, etc. To put it another way, whoever writes the first story might be (like the high bidder in a common value auction) the person who thought it was the most interesting, and the fact that no one else agreed how interesting it was might mean that he has overestimated its value. But, when there is an embargo, this kind of negative selection can't be going on; no one else could have published earlier, so the absence of earlier stories isn't a negative signal.

(Blogs, incidentally, seem to work on a different schedule; here are the March 12 takes by Steve Levitt and by Tim Harford on the original story...)

The paper reports a chain of kidney surgeries that resulted in ten transplants. It began with an altruistic donor, and was able to accomplish so many transplants because they didn't all have to be done simultaneously.

There's a simple economic idea at work here. Mostly in kidney exchange, all the surgeries are done simultaneously. The reason is that if two patient-donor pairs are exchanging kidneys, and if one pair were to donate a kidney to the other first, and the other were subsequently unable or unwilling to reciprocate, the pair that donated the kidney would be severely harmed; not only wouldn't they get the kidney they had been counting on, but they would have donated their donor's kidney and thus be unable to participate in a future exchange. But if there is an altruistic donor who doesn't have a specific patient in mind, and if he or she gives to a patient-donor pair, and they can't subsequently continue the chain, that is a loss, but no one is irreparably harmed. So, when chains begin with an undirected donor, they don't have to be simultaneous, since the costs of a breach are less.

" ' We’re bringing clarity to the marketplace, with disclosure up front,” said Bryan Saltzburg, the TripAdvisor general manager for new initiatives. More clarity and disclosure in the marketplace? Let’s hope it’s a trend."

Tuesday, March 10, 2009

Fed chairman Ben Bernanke, in a speech today (March 10) to the Council on Foreign Relations, after speaking of immediate steps to bail out financial institutions, talks about ways in which the financial markets might be redesigned in the longer term.

"At the same time that we are addressing such immediate challenges, it is not too soon for policymakers to begin thinking about the reforms to the financial architecture, broadly conceived, that could help prevent a similar crisis from developing in the future. We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components. In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim.Today, I would like to talk about four key elements of such a strategy. First, we must address the problem of financial institutions that are deemed too big--or perhaps too interconnected--to fail. Second, we must strengthen what I will call the financial infrastructure--the systems, rules, and conventions that govern trading, payment, clearing, and settlement in financial markets--to ensure that it will perform well under stress. Third, we should review regulatory policies and accounting rules to ensure that they do not induce excessive procyclicality--that is, do not overly magnify the ups and downs in the financial system and the economy. Finally, we should consider whether the creation of an authority specifically charged with monitoring and addressing systemic risks would help protect the system from financial crises like the one we are currently experiencing."

Regarding the financial infrastructure, he mentions among other things that"To help alleviate counterparty credit concerns, regulators are also encouraging the development of well-regulated and prudently managed central clearing counterparties for OTC trades. Just last week, we approved the application for membership in the Federal Reserve System of ICE Trust, a trust company that proposes to operate as a central counterparty and clearinghouse for CDS transactions. "

On the subject of clearinghouses, he goes on to say"The Federal Reserve and other authorities also are focusing on enhancing the resilience of the triparty repurchase agreement (repo) market, in which the primary dealers and other major banks and broker-dealers obtain very large amounts of secured financing from money market mutual funds and other short-term, risk-averse sources of funding....it may be worthwhile considering the costs and benefits of a central clearing system for this market, given the magnitude of exposures generated and the vital importance of the market to both dealers and investors. "

His comments on "procyclicality" e.g. on making sure that regulation of capital reserves don't cause banks to cut back lending just when credit needs to be loosened, are also worth reading. His concluding paragraph is a sober look at market design contemplated (as it often must be) in advance of reliable scientific knowledge, but in light of recent experience:

"Financial crises will continue to occur, as they have around the world for literally hundreds of years. Even with the sorts of actions I have outlined here today, it is unrealistic to hope that financial crises can be entirely eliminated, especially while maintaining a dynamic and innovative financial system. Nonetheless, these steps should help make crises less frequent and less virulent, and so contribute to a better functioning national and global economy."

Job fairs, which are intended to reduce search costs and make it easier for recruiters and recruits to find each other, seem to persist both in good times, when it may be hard for firms to fill their openings, and in hard times, when it may be hard for job seekers to find firms with openings:At Career Fairs, Anxiety and Hope for Job-Seekers.

Flower shows, which are similarly intended to make it easier for big nurseries and their potential customers to find each other, only recover their costs when there are lots of potential customers: Economic Crisis Takes a Toll on Flower Shows. So the recession is causing many traditionally annual shows to be cancelled.

"NOT SO long ago, prediction markets were being tipped as a fantastic new way to forecast everything from the completion date of a vital project to a firm’s annual sales. But although they have spread beyond early-adopting companies in the technology industry, they have still not become mainstream management tools. Even fervent advocates admit much remains to be done to convince sceptical managers of their value. “It’s still a pretty evangelical business,” says Leslie Fine of CrowdCast, one of the firms that provide trading platforms for companies keen to pool the collective wisdom of their employees."

The Economist has some hypotheses about the difficulties so far:"A big hurdle facing managers using prediction markets is getting enough people to keep trading after the novelty has worn off. "..."Another reason prediction markets flop is that employees cannot see how the results are used, so they lose interest. "..."Bosses may also be wary of relying on the judgments of non-experts."

At Crowdcast (formerly Xpree) they have a market design hypothesis. They blog in response to the Economist article:"we believe prediction markets are not yet mainstream because the current solutions rely on mechanisms designed for the stock market, not for the enterprise."

Sunday, March 8, 2009

Right now, American high school seniors who have applied to colleges are mostly waiting to hear where they will be admitted. (The major exceptions are seniors who applied and were admitted to a college through a single-application, binding early admissions program, in which they agreed in advance to attend if accepted.) Once the colleges make their acceptance decisions, it will be their turn to wait, to see which students will accept their offers. Because of the recession, there is more uncertainty than usual: In a Shifting Era of Admissions, Colleges Are Sweating.

So colleges are trying to determine which students are likely to come if admitted, and the signals that students send (and have sent) in this regard may turn out to be important in admissions decisions.

"Typically, they rely on statistical models to predict which students will take them up on their offers to attend. But this year, with the economy turning parents and students into bargain hunters, demographics changing and unexpected jolts in the price of gas and the number of applications, they have little faith on those models...."In response, colleges are trying new methods to gauge which applicants are serious about attending: Wake Forest, in North Carolina, is using Webcam interviews, while other colleges say they are scrutinizing essays more closely."..."Colleges consider an amalgam of factors, comparing them to past trends, to predict whether a student will attend, including, for example, what high school he went to; the strength of his grades, scores and recommendations; how much financial aid he has been offered; and whether he plays the cello or wants to study ethnobotany or economics. (If he is a she, the equation looks different still.)They consider how many phone calls, Web hits, campus visits and applications they have received. "

Schelling's demo had to do with a residential real estate market in which everyone preferred to live in a racially integrated neighborhood in which people of their own race were in a slight majority, and how the resulting dynamics could lead to segregation that nobody wanted. Harford's video dramatizes this with brown and white eggs.

I've frequently blogged about the design of school choice systems, and that is in part because the problems of school choice are so widespread, and difficult.

In Flanders, where there is a first-come-first-served allocation system, parents have been camped out for a week in winter weather to secure places for their children (here is a story, in Flemish, with a picture).

Friday, March 6, 2009

In an earlier post, Auction disruption by fake bids, I followed an auction of Chinese artifacts that was opposed by the Chinese government, and was ultimately disrupted when the high bidder indicated that his bid was fraudulent. Today's news is of an auction in Manhattan of Gandhi memorabilia (a watch and some other personal property) opposed by the Indian government (which had offered a pre-emptive bid of $20,000 for the items in an attempt to halt the sale, and had obtained an injunction in an Indian court when this was refused): Gandhi Items Sold for $1.8 Million.

The high bidder was an Indian national who may or may not be planning to donate the items to the Indian government. The auction house took some steps intended to protect themselves against the kind of disruption by false bid that occurred in the auction of Chinese artifacts.

"For the first time, Antiquorum Auctioneers, which focuses on watches, is requiring banking references, said Mr. Maron, the chairman.Recently, Cai Mingchao, a collector and auctioneer, raised an uproar after he submitted two winning bids for bronze sculptures from China’s Qing Dynasty at a Christie’s auction in Paris. Mr. Cai later refused to pay for the items, saying he had deliberately sabotaged the auction because the sculptures had been illegally looted in the 19th century from an imperial palace outside Beijing.“We are concerned about what happened at Christie’s,” Mr. Maron said in a phone interview. "

Thursday, March 5, 2009

Trust is essential for all sorts of transactions, and how to set up institutions to promote trust and trustworthiness in the marketplace is a big concern of market design.

It is even a big concern of armies trying to win the hearts and minds of a population in the face of a guerrilla insurgency. There's a very interesting essay in the Washington Post about earning, maintaining and restoring trust, by Admiral Mike Mullen, the Chairman of the Joint Chiefs of Staff: Building Our Best Weapon.

On a more technical note, I'm reading Community Structure and Market Outcomes: Towards a Theory of Repeated Games in Networks by Itay Fainmesser (who you can try to hire next year). He is interested how patterns of connections between buyers and sellers can promote trustworthy behavior through repeated play, and how the effort to achieve trust in the marketplace by engaging in long term relationships may exclude some parties from the market. In this connection he writes "...repeated interactions cannot perfectly substitute for institutions..."

The kinds of institutions he is thinking of are both legal (if you can sue me for non-performance, this makes it easier to trust me), and reputational (if you can give me a credible negative review that will impede my ability to transact in the future, this also makes it easier to trust me).

They describe some of the design concerns behind eBay's 2007 rollout of its new, more detailed feedback system, in which buyers are able to give some feedback on sellers anonymously. In particular, they describe how they and eBay became concerned that the old reputation system became less informative than it might have been, because the pattern of reciprocally positive feedback concealed underlying dissatisfactions. They describe how (both prospectively and retrospectively) they compared the relevant field data, and how laboratory experiments helped verify the intuitions gained in that way, and allowed them to see the efficiency effects of an improved reputation system.

Wednesday, March 4, 2009

"If Congress approves the plan, there will be no need to set subsidies because there will be no banks to subsidize. "

No no, not the current bank bailout (although it's easy to see how that sentence could be misinterpreted). In this case it refers to an auction the federal government is planning to hold to determine which lenders will be authorized to issue federally subsidized student loans: Education Dept. Forges Ahead With Student-Loan Auction. The idea is that banks would submit bids indicating how much federal subsidy they would require to issue student loans on agreed terms, and the lowest subsidies would win.

But "...by the time the auction process is complete, it could be moot. President Obama has called for abolishing the guaranteed-loan program altogether. If Congress approves the plan, there will be no need to set subsidies because there will be no banks to subsidize. "

Tuesday, March 3, 2009

The NY Times reports on incentive programs designed to motivate students to study, and on some apparent controversy between economists and psychologists interested in the subject: Rewards for Students Under a Microscope.

My colleague Roland Fryer is organizing several of these incentive programs, in collaboration with schools in NYC, Washington DC, and Chicago, through Ed Labs at Harvard.

The Times story reports that some psychologists are skeptical, because of concerns that incentives may damage intrinsic motivation:"Still, many psychologists warn that early data can be deceiving. Research suggests that rewards may work in the short term but have damaging effects in the long term...."This kind of psychological research was popularized by the writer Alfie Kohn, whose 1993 book “Punished by Rewards: The Trouble With Gold Stars, Incentive Plans, A’s, Praise and Other Bribes” is still often cited by educators and parents. Mr. Kohn says he sees “social amnesia” in the renewed interest in incentive programs.“If we’re using gimmicks like rewards to try to improve achievement without regard to how they affect kids’ desire to learn,” he said, “we kill the goose that laid the golden egg.” "

But the story gives Roland the last word:"Meanwhile, Dr. Fryer of Ed Labs urges patience in awaiting the economists’ take on reward systems. He wants to look at what happens over many years by tracking subjects after incentives end and trying to discern whether the incentives have an impact on high school graduation rates.With the money being used to pay for the incentive programs and research, “every dollar has value,” he said. “We either get social science or social change, and we need both.”"

"A man claiming to be the mysterious bidder who bought two Qing dynasty bronzes at an auction in Paris surfaced Monday, saying it was his patriotic duty to refuse to pay the $40 million winning bid.A Chinese collector and auctioneer, Cai Mingchao, said at a news conference in Beijing he had made the anonymous winning bids for the 18th-century bronze heads of a rat and a rabbit. He described himself as a consultant with the Lost Cultural Relics Recovery Program, a nongovernmental group that seeks to bring looted artifacts back to China...."On moral grounds, and as a way to protest the auction, Mr. Cai added, “I want to emphasize that the money won’t be paid.”"

"The Chinese government had attempted to halt the sale of the relics, saying they should be returned, not sold.However, the government denied having anything to do with the fake bid."..."In a statement, Christie's said: ''We are aware of today's news reports. As a matter of policy, we do not comment on the identity of our consignors or buyers, nor do we comment or speculate on the next steps that we might take in this instance.''"

One aspect of auction design that may need greater attention if these kinds of disruptions become commonplace is how to qualify and verify bidders and winners, and notify other bidders in the event that winners default, so that auctions can be made more resistant to attack by fake bidders.